Gauntlet has analyzed Llama’s interest rate curve adjustments for wETH:
- wETH’s Top 5 suppliers constitute 30% of liquidity within the pool. Concentration risk for the wETH asset is not as highly concentrated as other assets within the v2 market. If the top 5 suppliers withdrew their 30% supply of wETH and borrowing remains constant, wETH utilization would increase to 75% and still leave ample liquidity for further liquidations or withdrawals.
- The top 10 borrowers of wETH are utilizing stETH as collateral in order to enhance returns with a leveraged liquid staking strategy. Demand for borrowing wETH will continue to be driven by wETH/stETH recursive yield.
Top 10 Supply Positions for top wETH Borrows
- Post the Merge, the average wETH pool utilization is 51%. Utilization rate has not been relatively close to the kink since the Merge. The average borrower variable interest has been 2.19% since the Merge.
- As noted by @bayesiangame, Aave’s stETH collateral position represents 19.5% of stETH circulating token supply in the market. Concerns of stETH depeg have subsided since the ETH merge, but the risk remains until the Shanghai update.
Our systems observe ample liquidity in the stETH/wETH market. The slippage/liquidation curve suggests that a $220mm market sell of stETH through 1inch only incurs 1.5% slippage, implying a liquid market.
Gauntlet currently has no recommended adjustments to Llama’s interest rate recommendations. We also compliment the @Llamaxyz team for following best practices here and waiting for risk analysis before submitting a vote.